No new strategy expected at Tesco just yet, says Deutsche Bank

16th Oct 2014 09:13

Don't expect Tesco to announce a major change in strategy alongside its first-half results next week, say analysts at Deutsche Bank, as the supermarket chain lets its new management team settle in after the recent boardroom revamp.The German bank has reiterated its 'hold' rating on the stock with a 220p target price ahead of its interim report on 23 October."We don't expect management to commit to a new strategy at this point," wrote analyst Niamh McSherry."Furthermore, we expect new chief executive officer (CEO), Dave Lewis to take a 'doing' rather than 'talking' approach to management and we may not learn about new initiatives until after they've been implemented," she said.The focus has been on numerous senior management changes and suspensions at Tesco over recent weeks in the aftermath of a string of profit warnings and an accounting scandal.McSherry said she will be watching closely next week for hints about the direction of future strategy, especially regarding areas such as pricing and promotions, range, formats, cost restructuring, portfolio restructuring and the dividend and balance sheet.Deutsche Bank has pencilled in earnings before interest and tax of £854m at Tesco for its first half, which would equate to a 46% drop on last year. It also estimates a 75% drop in the final dividend, with the full-year payout likely to be just 3.7p, compared with 14.76p the previous year."Ideally, we would like the new CEO to 1) inspire confidence that there is a business model, and related cost base, under which Tesco can provide a significantly more compelling customer proposition, in order to stabilise profits and 2) to the extent possible, give an indication of how much this will cost," McSherry said.The stock was up 0.1% at 175.15p by 09:34 on Thursday.